The defendant in this case was a sole proprietor of a carpentry business. He chose to terminate his collective bargaining agreement with a trade, but continued to perform work within the jurisdiction of the agreement. Specific only to the construction industry under ERISA, doing so triggered withdraw liability from the affected funds. The funds audited and assessed the contractor $175,000.00 in withdraw liability as a result of his ongoing work within the jurisdiction of the agreement which triggered the event.
The contractor filed for bankruptcy protection in an attempt to discharge the debt. The Funds countered by claiming that the contractor was a fiduciary to the funds and that, under the “defalcation exception”, which prevents the discharge of a debt when the debtor was acting in the capacity of a fiduciary, the debt should not be discharged.
The 9th Circuit Court of Appeals “reasoned that the withdrawal liability was a statutory obligation, and was different from unpaid contributions arising from contractual obligations under the collective bargaining agreement.”
The primary issue in this appeal is whether that “withdrawal liability” is dischargeable in bankruptcy.
The 9th Circuit Court of Appeals states that answer requires some analysis of possible differences between withdrawal liability and liability for delinquent contributions. They ultimately agreed with the result reached by both the bankruptcy court and the district court that the debt is dischargeable. The pension fund cannot establish that the debtor is a fiduciary with respect to money it owes as withdrawal liability. The contractor had nothing to do with the fund’s administration or investment policy and did not exercise control respecting disposition of its assets upon withdraw from the collective bargaining agreement.
The district court held a debtor is not a fiduciary with respect to money he owes as withdrawal liability, because the Bankruptcy Code requires “a fiduciary relationship to exist before the bad act of nonpayment”, rather than as a result of it. As the withdraw liability was triggered after the contractor withdrew from the collective bargaining agreement and thus, he was no longer bound to the terms and conditions of the agreement, he could not be held as a fiduciary of the fund. As the fiduciary relationship ceased to exist upon legally withdrawing from a collective bargaining agreement, he could not be held as such after the fact. As a result of his status, the debt was found to be dischargeable.
Key points worth noting:
These views and opinions are personal and based upon the facts and information as it has been presented to me. I am not an attorney and do not present myself as one. I always recommend that employers and employees seek appropriate legal counsel with matters such as these to further limit the potential liability to you and your organization.
The contractor filed for bankruptcy protection in an attempt to discharge the debt. The Funds countered by claiming that the contractor was a fiduciary to the funds and that, under the “defalcation exception”, which prevents the discharge of a debt when the debtor was acting in the capacity of a fiduciary, the debt should not be discharged.
The 9th Circuit Court of Appeals “reasoned that the withdrawal liability was a statutory obligation, and was different from unpaid contributions arising from contractual obligations under the collective bargaining agreement.”
The primary issue in this appeal is whether that “withdrawal liability” is dischargeable in bankruptcy.
The 9th Circuit Court of Appeals states that answer requires some analysis of possible differences between withdrawal liability and liability for delinquent contributions. They ultimately agreed with the result reached by both the bankruptcy court and the district court that the debt is dischargeable. The pension fund cannot establish that the debtor is a fiduciary with respect to money it owes as withdrawal liability. The contractor had nothing to do with the fund’s administration or investment policy and did not exercise control respecting disposition of its assets upon withdraw from the collective bargaining agreement.
The district court held a debtor is not a fiduciary with respect to money he owes as withdrawal liability, because the Bankruptcy Code requires “a fiduciary relationship to exist before the bad act of nonpayment”, rather than as a result of it. As the withdraw liability was triggered after the contractor withdrew from the collective bargaining agreement and thus, he was no longer bound to the terms and conditions of the agreement, he could not be held as a fiduciary of the fund. As the fiduciary relationship ceased to exist upon legally withdrawing from a collective bargaining agreement, he could not be held as such after the fact. As a result of his status, the debt was found to be dischargeable.
Key points worth noting:
· This contractor had legally withdrawn from an existing collective bargaining agreement
· The withdraw liability assessed was calculated and assessed for work performed within the jurisdiction and terms of the agreement prior to termination of the relationship. It was only assessed after the contractor had legally withdrew from the collective bargaining agreement.
· The fiduciary relationship ceased to exist upon legally withdrawing from a collective bargaining agreement.
These views and opinions are personal and based upon the facts and information as it has been presented to me. I am not an attorney and do not present myself as one. I always recommend that employers and employees seek appropriate legal counsel with matters such as these to further limit the potential liability to you and your organization.
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